Wednesday Watch

Evening Headlines

Bloomberg:

• PBOC Tightens Money Market Rates. (video)
• Asia Inflation Surge Fueled by Currency Rout That’s Already Gone. The past week’s surprising pickup in Asia-Pacific inflation gauges may be fleeting. The New Zealand dollar jumped to a three-month high Tuesday after a central bank index of price-pressure expectations climbed to the highest since 2015. That came after January inflation readings for South Korea, Indonesia and Thailand exceeded expectations. Philippine price gains accelerated too, though by less than economists had been expected. A key question is how much of the price gains can be traced back to last quarter’s foreign-exchange rout, with every major Asian currency weakening against the dollar in the three months through December. This year’s recovery in local exchange rates, along with a plateau in crude oil markets, raises the prospect consumer price gains will slow as a result.
• Japan Stocks Advance on Yen Slide While Oil Slumps. Japanese equities advanced after the yen retreated from a two-month high. Prospects elsewhere were mixed after U.S. stocks eked out gains, Treasuries rallied for a third day and crude oil nursed its worst two-day slump in four weeks. The Topix climbed after the Japanese currency dropped the most in almost two weeks. The Dow Jones Industrial Average touched an all-time high Tuesday on speculation the White House would deliver details on spending and tax plans, before the rally faded as oil majors slumped. Treasuries gained, sending the 10-year yield below 2.40 percent. Crude tumbled on concern U.S. inventories are increasing, while gold slipped for a second day. The Topix rose 0.2 percent, as gains by automakers overshadowed declines in energy shares. South Korea’s Kospi Index fell 0.6 percent. Australia’s S&P/ASX 200 Index rose 0.1 percent and New Zealand’s benchmark was flat.
• Demand for Treasuries Is Now a ‘Made in the U.S.A.’ Phenomenon. (video) Buy American, hire American. In the world’s biggest debt market, domestic purchasers have been faithfully fulfilling the first half of President Donald Trump’s inauguration decree. Demand for U.S. Treasuries has moved "from global to local," Bank of America Merrill Lynch rates strategists Carol Zhang and Shyam Rajan wrote in a note to clients Tuesday. Whether that turns out to be a good thing remains to be seen. 
• Trump Sinks Drug Stocks Again on Medicare Drug Price Negotiation. President Donald Trump supports Medicare drug price negotiations, his spokesman said Tuesday, remarks that sent pharmaceutical stocks swinging again as investors tried to assess whether drugmakers will be forced into bidding wars for government business. “He’s for it, yes,” White House spokesman Sean Spicer said at a press briefing in response to a question asking to clarify Trump’s position on the matter.
• Apple Hires Amazon’s(AMZN) Fire TV Head to Run Apple(AAPL) TV Business.

Wall Street Journal:

• Court Grills Lawyers on Donald Trump’s Immigration Order. Judges fired tough questions at both sides in hearing over Trump’s travel ban, promising a quick ruling.

Fox News:

• Federal scientist cooked climate change books ahead of Obama presentation, whistle blower charges. (video)

CNBC:

• Trump's deregulation wave may have companies geared up to spend and hire. 
• Why Apple’s(AAPL) big rally could just be getting started. (video)
• Yum(YUM) China restaurant sales flat in fourth quarter.
• After-hours buzz: DIS, BWLD, PNRA & more.

Zero Hedge:

• Trump Offers To "Destroy Career" Of Texas State Senator At Meeting With National Sheriffs' Assoc.
• Goldman(GS) Stunned By Collapse In Gasoline Demand: "This Would Require A US Recession".
• Yuan Extends Plunge After PBOC Weakens Fix To 3-Week Lows. (graph)
• The S&P Has Now Gone 36 Days Without A 1% Intraday Move: The Longest Streak In History. (graph)
• Meet The Three Federal Judges Who Will Decide The Fate Of Trump's Immigration Ban.
• At Over $2.5 Trillion, US Student And Auto Loans Hit New All Time High. (graph)
• Here Come The Robots - And They Are Going To Take Almost All Of Our Jobs.
• WTI/RBOB Plunge After 2nd Biggest Crude Inventory Build In US History. (graph)
• Dow Reaches Record High Despite Debt Ceiling Doubts & Dollar Pump'n'Dump. (graph)

Busines Insider:

• An ugly war of words between traders has descended into Game of Thrones references.
• This veteran-run coffee company wants to take on 'anti-American' Starbucks to 'make coffee great again'.
• GOP congressman: Reforming Dodd-Frank is a 'this-year priority' for Trump.
• Iran pulls missile from launchpad following being put 'on notice' by Trump administration.

Telegraph: 

• EU faces crisis as IMF warns Greek debts are on ‘explosive’ path.

China Securities Journal:

• PBOC's Market Rate Hikes Target Property Bubbles. Chinese central bank's recent market rate hikes also aim at financial deleveraging. Hikes also help ease pressure on yuan depreciation and capital outflows.

Night Trading 

• Asian equity indices are -.50% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 109.25 +.5 basis point.
• Asia Pacific Sovereign CDS Index 29.25 -.75 basis point.
• Bloomberg Emerging Markets Currency Index 71.0 -.03%. 
• S&P 500 futures -.14%. 
• NASDAQ 100 futures -.04%.

Morning Preview Links

Earnings of Note
Company/Estimate

•  (ALK)/1.40
• (CTSH)/.86
• (GT)/.87
• (HUM)/2.08
• (JEC)/.63
• (TWX)/1.19
• (FWRD)/.55
• (PPC)/.40
• (PRU)/2.32
• (WFM)/.39 

Economic Releases 
10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory gain of +2,714,500 barrels versus a +6,466,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -580,200 barrels versus a -1,245,000 barrel decline the prior week. Distillate inventories are estimated to rise by +459,800 barrels versus a +1,568,000 barrel gain prior. Finally, Refinery Utilization is estimated to fall by -.23% versus a -.1% decline prior.

Upcoming Splits

• None of note

Other Potential Market Movers

• The $23B 10Y T-Note auction, weekly MBA mortgage applications report and the Cowen Aerospace/Defense/Industrials conference could also impact trading today.

BOTTOM LINE:  Asian indices are mostly lower, weighed down by technology and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Slightly Higher into Final Hour on Earnings Optimism, Yen Weakness, Technical Buying, Tech/Agriculture Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Lower
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 11.35 -.18%

• Euro/Yen Carry Return Index 125.27 -.10%

• Emerging Markets Currency Volatility(VXY) 10.30 +.10%

• S&P 500 Implied Correlation 45.78 -3.62%

• ISE Sentiment Index 54.0 -5.26%
  

• Total Put/Call 1.19 +14.42%

• NYSE Arms 1.44 +12.35%

Credit Investor Angst:

• North American Investment Grade CDS Index 65.47 +.17%
  

• America Energy Sector High-Yield CDS Index 379.0 +1.59%

• European Financial Sector CDS Index 95.61 +4.52%

• Western Europe Sovereign Debt CDS Index 23.59 -.46%

• Asia Pacific Sovereign Debt CDS Index 29.17 -2.85%

• Emerging Market CDS Index 226.79 -.18%
  

• iBoxx Offshore RMB China Corporate High Yield Index 134.02 +.13%

• 2-Year Swap Spread 31.25 -1.25 basis points

• TED Spread 51.5 -1.25 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -28.75 unch.
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 71.05 -.46%
• 3-Month T-Bill Yield .52% +1.0 basis point

• Yield Curve 122.0 -4.0 basis points
  

• China Import Iron Ore Spot $83.29/Metric Tonne +3.34%

• Citi US Economic Surprise Index 41.90 -1.9 points

• Citi Eurozone Economic Surprise Index 52.60 -10.6 points

• Citi Emerging Markets Economic Surprise Index 37.40 -.4 point

• 10-Year TIPS Spread 2.0 -2.0 basis points
• 40.80% chance of Fed rate hike at May 3 meeting, 65.1% chance at June 14 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +25 open in Japan 
• China A50 Futures: Indicating +36 open in China

• DAX Futures: Indicating +1 open in Germany

Portfolio: 

• Slightly Higher: On gains in my in my medical/tech sector longs and emerging markets shorts 

• Disclosed Trades: None

• Market Exposure: 75% Net Long

Today's Headlines

Bloomberg:

• Cracks Are Appearing in Australia’s Trillion-Dollar Debt Pile. The Reserve Bank of Australia frequently seeks feedback on the health of the economy. It might want to call the debt counselors soon. Homeowners, consumers and property investors around Australia are making more calls to financial helplines as three warning signs back up the spike in demand: mortgage arrears are creeping up, lenders’ bad debt provisions have increased and personal insolvencies are near an all-time high. “Its steadily out of control -- I don’t know of too many financial counseling services where demand doesn’t exceed supply,” said Fiona Guthrie, chief executive officer of Financial Counselling Australia, who says the biggest increase in calls is from people suffering mortgage stress. “There are more people who have got mortgages that they can’t afford to pay.”
• German Industrial Output Unexpectedly Falls Most in 8 Years. German industrial production unexpectedly fell in December as the timing of Christmas holidays damped manufacturing and construction. Output, adjusted for seasonal swings and inflation, dropped 3 percent from November, when it advanced a revised 0.5 percent, the Economy Ministry in Berlin said on Tuesday. The volatile indicator’s worst reading since early 2009 compares with a median estimate for a 0.3 percent increase in a Bloomberg survey. Production was down 0.7 percent from a year earlier.
• Europe Stocks Rise as FTSE 250 Hits Record, Property Gauge Jumps. (video) European stocks advanced as the FTSE 250 Index of midcaps jumped to record close and real estate companies gained. Property companies were buoyed as bonds rallied across Europe and lifted shares that are bought as proxies for fixed income. The effect hurt banking shares, which retreated for a second day along with German debt yields, amid simmering worries over Europe’s political risks, and after BNP Paribas’s results missed estimates. The U.K.’s FTSE 250 climbed 1 percent to an all-time high. The Stoxx Europe 600 Index closed 0.3 percent higher, with the property sector gaining 1.7 percent.
  
• Bond Bear Market Is Still on Hold as Four Indicators Flash Green.
• Illinois Faces Further Downgrades If Budget Deal Not Reached. Illinois’s failure to resolve the nearly two-year political impasse over the budget could trigger further cuts to its bond rating, which is already the lowest among U.S. states, S&P Global Ratings said. The report from the company comes as lawmakers weigh measures that would raise taxes, cut pension costs and borrow to cover a backlog of unpaid bills. The bi-partisan plan, put together by the leaders of the Senate, could stop the state’s rating from slipping further, though any upgrade wouldn’t happen during the next two years, S&P said.
• Trump and U.S. Nuclear Power Find Common Ground in Jobs Push. Nuclear power providers, battered by low prices and competition from cheap natural gas, say they can help President Donald Trump fulfill a campaign promise to put more people to work.

Wall Street Journal:

• GOP Plan to Overhaul Tax Code Gets Held Up at the Border. Linchpin of potential legislation is a concept known as ‘border adjustment,’ which is splitting the business world into competing camps.
• Mexico Is Key Cog in GM’s(GM) Profit Machine. A move to tax imports would wipe out a significant share of auto maker’s North America margins.
• Big Investors Cut Back on Commercial Property as Bull Market Loses Steam. Lofty prices, recent rise in interest rates among reasons for investors’ caution.

Fox News:

• DeVos confirmed as education secretary, Pence casts historic tie-breaking vote. (video)
• EXCLUSIVE: Iran pulls missile from launchpad after apparent prep for launch, US officials say. (video)

CNBC:

• Houses are the least affordable they've been in seven years: Here's why. (video)
• Here's where the big tech companies are taking us in 2017.
• Don't give up on the Trump trade yet, analyst says; 5 stocks that will rally on tax plan.
• Paul Ryan says Obamacare replacement bill will be completed this year.

Zero Hedge:

• "There's A Global Riot Against Psuedo-Experts" Nassim Taleb Exclaims "This Is Not About Fascism".
• US Economic Confidence Surges To Highest Level Ever Recorded By Gallup. (graph)
• Trump: We're Going To Take It To The Supreme Court. (video)
• 55% Of Europeans Agree With Trump: "Muslim Immigration Should Be Banned".
• Fed's Kashkari Says "Stock Prices Appear Somewhat Elevated", Explains "What Might Be Wrong". (graph)
• Job Openings Disappoint As Americans Quitting Their Jobs Tumble. (graph)
• Bild Asks "Is Germany Tired Of Merkel?"
• Trump Slams "Haters", Says "I Don't Know Putin", Lashes Out At Obama Deal With "#1 In Terror" Iran.
• French Economic Uncertainty Surges To All-Time Highs. (graph)
• Iran's Ayatollah Vows Retaliation, Says Trump Exposes "Real Face" Of American Moral Corruption.

Business Insider: 

• United Airlines CEO: Trump's Mexico wall is 'damning and damaging' to America.
• China may be preparing for a crippling preemptive missile strike on US military bases.

Bear Radar

Style Underperformer:

• Small-Cap Value -.60%

Sector Underperformers:

• 1) Energy -1.8% 2) Energy -1.0% 3) Homebuilders -.8%

Stocks Falling on Unusual Volume: 

• MSI, SABR, KORS, OXLC, MOD, STE, YRCW, PINC, BP, FMC, VMC, TEVA, ARW, MD, GM, HQY, TEN and RH

Stocks With Unusual Put Option Activity:

• 1) MSI 2) NOV 3) TUP 4) SKX 5) COTY

Stocks With Most Negative News Mentions:

• 1) RH 2) YRCW 3) KORS 4) FXCM 5) PMD

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume